Gold settles higher near $1,280 as US debt deadline looms

Monday, 14 Oct 2013 | 2:42 PM ETReuters

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Gold settled higher on Monday as the U.S. fiscal impasse remained unresolved.

Senate negotiations to resolve the U.S. fiscal crisis made progress on Sunday and, while there are no guarantees of an end to the government shutdown, many in the market believe a deal to raise the borrowing ceiling will emerge.

Congress has until Thursday to raise the debt ceiling, or risk defaulting.

"There has been some short-covering today ... but overall, the market is expecting a U.S. debt ceiling agreement eventually and it is mostly positioning a little bit more on the short side rather than the long,'' MKS SA head of trading Afshin Nabavi said.

"If there is a deal however we may not have a big move down, as this seems to have very much been discounted.''

Spot gold rose 1.2 percent to a session high of $1,288.88 an ounce earlier and was last trading up 0.4 percent to $1,278 an ounce. U.S. gold futures for December delivery settled $8.40 higher at $1,276.60 an ounce.

Bullion fell to its lowest since July 10 at $1,262.14 an ounce on Friday, after more than 3 million ounces changed hands on the Comex December futures contract in just 15 minutes, prompting a near $30 drop in prices and a brief trading halt.

Gold has not seen a lot of safe-haven bidding over the last two weeks, when parts of the U.S. government have been shut down due to the budget impasse.

Instead, prices have been hurt by large sell orders, amplified by technical selling. Earlier this month, another big trade sent prices lower by $25 an ounce in a short period of time.

With no Commitment of Traders report on Friday due to the U.S. government shutdown, it is difficult to gauge the extent of speculative positioning and whether the move that began early last week is driven by the short or long side, ANZ said in a note.

"We view that long liquidation would be much more harmful to sentiment.''